Banking

Money — an ingenious creation of man-is helping him ease his dealings with his fellow men; but banking — a relatively newer concept-is revolutionising those dealings. As a practice, banking seems audacious enough even to overturn, in a way, the tenets of natural law, by delivering more than what it accepts, without any obvious effort. Just as wine matures and enriches itself with age, so money, stored in a bank, appreciates in volume and value over time. The increase in value, which constitutes interest, is a powerful incentive to attract otherwise mundane and inactive assets to banks. However, with time, banks, from being storehouses for surplus money, have become a vital hub of trade-related activities.

In reality, however, banks do not defy natural laws or perform any magic while creating wealth. It is by a policy of ‘give and take’ that banks increase the volumes of the money they hold. They do not serve merely as storehouses for money; they also lend money to those who need it, and charge a fee for the money they provide. By keeping this fee or interest, more than what they need to meet their commitments on the deposits they hold, banks make sure they have surplus money to make their business viable. Thus, the creation of money that banking practice implies, is more virtual than real.

More than serve the interests of those who park money with them, and of those who seek money from them, banks also support developmental interests of a society, by pooling large volumes of wealth that they obtain from their clients. By such pooling of wealth, scattered among the people, banks make it possible for a competent authority to access, quickly and conveniently, large amounts of money necessary for development work.

Hence, banking practice, by serving as a catalyst in developmental activities, has enhanced its utility and image several fold. Such a function has particular relevance in developing economies, like that of India, where wealth distribution is hopelessly staggered, and disparities in it, quite large. India, therefore, took an important step in development, by nationalising banking activity on a large scale, more than twenty-five years ago. The government was thus able to command much more wealth than it could before, and more importantly, to control the utilisation of such wealth. By doing so, the government created a convenient opportunity for equitable development.

Much of the progress India has realised since bank nationalisation, be it in agriculture or industry, is the result of such a policy. But, as in the case of other similar policy initiatives, there is a wide gulf between ideals and reality. Government control, in progressively increasing doses, caused in the banking sector, predictable side-effects, like corruption, irresponsibility, insensitivity to genuine needs, and above all, an all-pervading, crippling lethargy, which resulted in wastage of wealth or unwise deployment of funds. Being the custodian of public wealth, the banking industry was exploited by the governments in power to further their selfish prospects. When ‘loan melas’ and writing-off of loans started becoming more the rule than the exception, the jolts the banking industry suffered as a result, reminded the governments rather rudely to curtail profligacy and to observe prudence.

Equal to their potential in ensuring social development, is the importance of banking practices in easing trade and business activities. Instruments created by the banking industry, like cheques, drafts and letters of credit, have made money transactions and trade simpler and risk-free. By such universally recognised instruments, it has now become possible to trade with anyone, anywhere in the world, without the fear of losing money, owing to unkept promises.

The banking industry has become an important beneficiary of the recent trends in the development of information technology. The more the banks are lapping up the fruits of such development, the more efficient and worthwhile has deployment of wealth become, and the less dependent people are on paper money and transaction instruments, like cheques and drafts, while dealing with funds. Today, it is possible, by a dab on the computer keyboard, to transfer any amount of money from one corner of the world to another, almost instantaneously. Such technological advances have helped create a global network of financial channels to move money to where it fetches the maximum advantage.

At the level of personal banking, technology and automation have made transactions convenient, efficient, and above all, interesting. Automatic Teller Machines(ATMs) have made the withdrawal of money possible at any time during the day, without the help of bank personnel. Possibly, the time is not far off, when, to withdraw money, even a visit to the bank may not be necessary. As international movement of funds has been made possible, ordinary withdrawals and payments can as well be made by feeding instructions through the telephone.

Thus, besides making themselves attractive to their customers, banks, by harnessing technology, also improve the services they offer their customers, who, in fact, constitute the most important element in banking. Hopefully, such tactics will help banks access more funds than ever before. After all, money cannot be allowed to remain idle, lest it should become a wasted resource.